CalPERS May Calculate Retirement Benefits for a City Council Member Separately From His Benefits as a City Employee

A city administrator-turned-elected city council member believed his retirement benefits would be based on his highest salary multiplied by all his years of service, including his years on the city council; however CalPERS calculated his benefits separately for the two positions, resulting in lower benefits than he expected. The Court of Appeal for the Third District held that nothing barred CalPERS from applying governing statutes separately to multiple positions when calculating retirement benefits, and that the city administrator-turned-council member was only entitled to the retirement benefits he actually earned.  (Chaidez et al. v. Board of Administration of California Public Employees’ Retirement System et al. (February 3, 2014, C065913) --- Cal.Rptr.3d ----, Cal.App. 3 Dist.).

Leonard Chaidez ("Chaidez") worked as a full-time employee for the City of Hawaiian Gardens from 1988 to 1997.  He received his highest salary when he held the position of city administrator.  During that time, Chaidez was a “miscellaneous” member of the Public Employees’ Retirement System ("CalPERS").  When he left his job at the City, he did not cash out his retirement contributions and therefore remained a miscellaneous member of CalPERS.  From 1999 until 2007, Chaidez served as an elected member of the Hawaiian Gardens City Council, earning compensation much lower than what he received as a city employee.  At that time, he became an “optional” member of CalPERS, as elective officials were otherwise excluded from membership.

Chaidez received annual member statements from CalPERS for the duration of his membership, starting with the time he was first employed by the City.  These statements outlined his service credit and estimated retirement benefits.  The statements did not always contain the same information; some were more generalized, others provided specific estimates.  Chaidez believed that his retirement benefits would be formulated using his highest salary multiplied by the number of service years, including the time he served as an elected official.  He believed that only the higher rate of pay he received as a city administrator would be used in the retirement calculation, not the lower pay he received as a city council member.

After Chaidez expressed concern that his annual statements were showing less-than-expected retirement income, CalPERS informed him that the time he spent working as an elected official was governed by Government Code section 20039, while sections 20037 and 20042 governed the calculation of his time spent as a city employee.  Thus, the CalPERS Board separately calculated Chaidez's retirement benefits based on his different positions and in accordance with Section 20039, which states that where "elective or appointed service is a consideration in the computation of any pension or benefit, the member may have more than one final compensation."  The trial court entered judgment in favor of CalPERS.  Chaidez appealed on the basis that he was entitled to higher pension benefits because CalPERS did not timely notify him of the separate calculations required by section 20039, and that CalPERS had a constitutional fiduciary duty to provide information to its members.  Chaidez contended that this duty trumped statutory requirements.

The court concluded there was evidence in the record that established that CalPERS provided timely information about section 20039 to Chaidez, but that the controlling issue was whether the California Constitution barred CalPERS from applying section 20039 to the case at hand.  The court determined that the “constitutional mandate by which PERS operates does not include an overlay of fiduciary obligations justifying an order to pay greater benefits than the statutes allow.  "In other words, the Constitution does not give Chaidez a right to benefits he did not earn.”  The court further stated that nothing prevented CalPERS from calculating Chaidez's retirement benefits separately for his different positions.

Topics:  CalPERS, ERISA, Municipalities, Public Employees, Public Employers, Retirement Plan

Published In: Constitutional Law Updates, Wills, Trusts, & Estate Planning Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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